It was only 18 months ago that you couldn't give away a barrel of crude oil. Today, a barrel of West Texas Intermediate Crude Oil will cost you more than $80:
WTI Crude Oil
On April 20th, 2020 the May 2020 crude oil futures contract ended the trading session at negative $37 per barrel. Yes, NEGATIVE. Someone would pay you $37 to accept delivery on that barrel of crude oil. There was very little demand and there was massive oversupply due to the rapid shutting down of the global economy.
How things have changed since April 2020. Demand is surging and supply isn't catching up fast enough due to recent underinvestment in the energy sector.
At the current pace global oil demand is on pace to surpass 100 million barrels per day in December:
To be clear, there is no shortage of oil or natural gas globally. There is simply a shortage of commitment to extract it from the Earth. In the United States, the states of Texas and Louisiana have a veritable sea of natural gas beneath the ground, and in Alaska we have more oil than we could ever use. There is simply a lack of political will to extract these resources from the Earth in some of these places.
“I’m concerned hydrocarbon demand is not falling fast enough to match the potential under investment in fossil fuels,” ~ Jason Bordoff, dean of the Columbia Climate School and a former senior energy official in the Obama administration
If there is a scarcity on this Earth, it is a scarcity of our own making.
This morning, the Doomberg blog has written a poignant piece titled "Starvation Diet":
"We are on the cusp of a significant mass starvation event of our own making. Soon, tens of millions of the world’s most impoverished people will die from an inability to feed themselves, while many of those comfortably getting by now – especially in the Western World – are in for a shock."
The newswire headlines are growing louder that there is a shift to a stagflationary supply-side scarcity mindset, with increasingly expensive natural resources and agricultural commodities. Barron's and The Economist have also confirmed that we are in the midst of a supply side shock:
The race is on for natural resources globally and this shock is likely to continue until there is widespread demand destruction. Demand destruction due to surging prices for commodities and raw materials would almost certainly coincide with a recession. With Goldman Sachs and the Atlanta Fed slashing US GDP growth estimates multiple times in recent months, the Federal Reserve finds itself in a quandary as it debates tightening the monetary policy liquidity spigot into a rapidly decelerating economy.
With regard to commodities, and most things, the cure for high prices is always high prices. We are not there yet, but we are well on our way.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.